'82 slump means diminishing returns at tax-preparer firms
While it may be vastly less popular than home sewing or carpentry, a growing number of Americans are making tax preparation a do-it-yourself project. So despite widespread grumbling about the federal tax code's baffling complexity, business is down at most major firms that specialize in computing taxes and filling in forms.
H&R Block, the nation's largest preparation firm, is running ''modestly behind'' last year in the number of returns prepared at its 9,073 offices, admits Thomas Bloch, president of its tax operations division. He declined to provide precise figures.
Smaller tax firms have also been hit. Business will be off around 3 percent this tax season at Triple Check Inc.'s 80 offices on the West Coast, a firm official says. Meanwhile, the volume of returns prepared by Tax Man's 23 offices in Massachusetts and New Hampshire is down between 5 and 10 percent, according to company president Robert Murray.
Standing above the battle for tax preparation business are certified public accounting firms. Large CPA firms typically do tax planning and fill out forms for top corporate executives and others with large incomes and complex financial affairs. In this segment of the tax preparation market, business remains strong.
''There has been no drop-off, there has been a pickup,'' says Albert B. Ellentuck, national tax partner at the CPA firm of Laventhol & Horwath.
A weak economy only partly explains the more typical taxpayer's urge to tackle the tattered remains of last year's financial transactions, tax preparers say.
''The thing that is hurting us more than anything is unemployment,'' says Mr. Bloch. ''A lot of those people who are unemployed are our type of customers, and many of them do not have to file, or maybe feel they can't afford professional help this year.'' The typical Block customer has an income between $15,000 and $ 45,000, the firm says.
But the downturn is larger than in previous recessions. ''In the recession of 1974-75 we were never off by more than 2 percent,'' Mr. Murray at Tax Man says.
And the current decline comes on the heels of slow erosion in the tax business, which has seen the share of returns handled by all tax preparers ebb from 47.6 percent in tax year 1976 to 37.9 percent in tax year '81. Until recently, the large firms survived the slide in the overall market by winning business from smaller, ''mom-and-pop'' tax preparers.
Attempts by the Internal Revenue Service (IRS) to simplify filing procedures have played a role in trimming business for tax preparers. For example, a new form, 1040-EZ, has made filing less troublesome for those with uncomplicated financial situations.
''The 1040EZ may be a factor'' in the business slowdown, Mr. Murray says. Individuals abandoning tax preparation services ''tend to be lower [income] clients who might as easily do it as pay someone to fill [the forms] in,'' says James Lee, public relations director at Triple Check.
Rising fees for preparing returns have also played a role in sending individuals running for their calculators and tax instruction books. ''As the average charges go up, it means losing'' customers with easier returns, Mr. Murray says.
So this year, tax firms have trimmed the size of their price increases or held prices steady. H&R Block, for example, has raised its fees only 5 percent this year, as against 13.5 percent last year. As a result, the average fee at Block this year will be about $37.50. A spokesman for Beneficial Corporation, which prepares taxes in a nationwide chain of loan offices, raised fees only ''slightly,'' a spokesman says. And Triple Check, where the typical fee is in excess of $100, did not raise prices at all.
Analysts think most individuals who want tax aid, and can afford it, are already using a tax service. And the number of new returns is slowly growing, with the IRS estimating that the number of individual returns will grow by only four-tenths of 1 percent this year, to 95.9 million. So the period of rapid growth for the industry may well be over.
''The business is mature and will not exhibit the growth seen in past years, '' says Ronald W. Frank, an analyst with the Value Line Investment Survey.
Thus tax preparation firms will have to battle one another for a bigger piece of the market if they want to grow. ''From a business point of view [the goal is ] fighting for share,'' Mr. Murray says.
While the firms are battling for customers, the IRS is not. Last year the service stopped offering to fill out forms for individuals, although it will still give advice on how to do so. The service has also asked Congress for permission to cut, from 4,519 to 3,533, the number of taxpayer assistance workers on its payroll.
Commercial tax preparers like H&R Block, Tax Man, and Triple Check are hoping that business will rebound as April 15 approaches. They also note that congressional action on taxes this year could make the system more complex and boost demand for their services next year.
''One change in the tax law can do wonders'' for business, Mr. Murray notes. ''There is a saying in the business that if Congress simplifies the law one more time, even we won't understand it.''